This is an entirely free service. No payments are to be made. Also send me The Ultimate Guide to Profiting From Derivatives and sign me up for Profit Hunter,a free newsletter that focuses on identifying short term money making opportunities.Download NowSubscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.

Forex related gains further boost the bottomline and help it register an impressive growth of 61% YoY.

Consolidated bottomline grows 54% YoY on the back of a 6% YoY decline in revenues.

(Rs m)

1QFY07

1QFY08

Change

Net sales

7,575

6,689

-11.7%

Expenditure

6,151

5,057

-17.8%

Operating profit (EBDITA)

1,424

1,632

14.6%

EBDITA margin (%)

18.8%

24.4%

Other income

54

121

124.3%

Interest (net)

(8)

376

Depreciation

365

367

0.6%

Profit before tax

1,105

1,761

59.4%

Extraordinary income/(expense)

-

-

Tax

351

550

56.5%

Profit after tax/(loss)

754

1,212

60.8%

Net profit margin (%)

9.9%

18.1%

No. of shares (m)

215.1

215.1

Diluted earnings per share (Rs)*

14.0

22.5

Price to earnings ratio (x)**

11.4

(* annualised, ** on trailing twelve months earnings)

What is the company’s business?

Established in 1939, Tata Chemicals Limited is India's leading manufacturer of inorganic chemicals, fertilisers and food additives. Part of the US$ 22 bn Tata Group, the company owns and operates the largest and the most integrated inorganic chemicals complex in the country at Mithapur, Gujarat. The company's fertiliser complex at Babrala, Uttar Pradesh, is known for its energy efficiency standards. The company's phosphatic fertiliser complex at Haldia in West Bengal is currently the only manufacturing unit for DAP/NPK complexes in West Bengal. In 2006, TCL acquired Brunner Mond group in the UK making it the world's third largest producer of soda ash with manufacturing locations in three continents.

What has driven performance in 1QFY08?

Let us have a look at the segmental performance of the company.

Inorganic chemicals: The company has two major divisions here viz. soda ash and food additives. As far as soda ash is concerned, while realisations were firm, the company faced production constraints as also rising input costs. On the food additives front, the company maintained its leadership position in the domestic edible salt market with a 49% market share. Sales registered a growth of 5% over the same period last year.

Fertilisers: The revenues from this segment were lower by 17% YoY, mainly on account of a planned maintenance shutdown taken during the quarter. On the other hand, higher value NPK fertilisers continued to comprise a greater proportion of phosphatic fertiliser sales and this is likely to be margin accretive in the long run. With the company acquiring a stake in a Morocco based company, the supply related concerns also seem to be alleviated to a great extent. The company has also received permission from the government to commence the first phase of debottlenecking at its Babrala facility.

segmental break up

(Rs m)

1QFY07

1QFY08

% change

Inorganic chemicals

Revenues

3,729

3,532

-5.3%

PBIT

913

914

0.0%

PBIT margin (%)

24.5%

25.9%

Fertilisers

Revenues

3,818

3,157

-17.3%

PBIT

516

529

2.6%

PBIT margin (%)

13.5%

16.8%

Rupee appreciation helps: Despite lower sales to the tune of 12%, company’s operating margins have expanded 560 basis points. This could be attributed to the sharp rise in rupee vis-ŕ-vis the dollar during the quarter. With imported raw materials accounting for as much as 65%-70% of the total raw material costs of the company, a rise in the rupee has led to lower outgo for Tata Chemicals. This is evident from the 21% and 32% decline in the raw material costs and traded goods purchased respectively during the first quarter on a YoY basis. Further, the other expenses are also lower by 29% YoY, mainly due to forex related losses during the same quarter last year.

cost break up

(Rs m)

1QFY07

1QFY08

Change

Raw materials

2,454

1,941

-20.9%

% sales

32.4%

29.0%

Traded goods purchased

474

323

-31.9%

% sales

6.3%

4.8%

Staff cost

342

388

13.5%

% sales

4.5%

5.8%

Store, spare parts & consumed

429

413

-3.8%

% sales

5.7%

6.2%

Power and fuel

896

739

-17.5%

% sales

11.8%

11.0%

Freight and forwarding charges

659

621

-5.8%

% sales

8.7%

9.3%

Other expenditure

897

633

-29.4%

% sales

11.8%

9.5%

Rupee appreciation has not just helped the company pare down its raw material costs but it has also helped boost its interest income. As the company has raised debt in the form of an FCCB and since, the same has not been fully converted into shares yet, their marking to market has led to a huge jump in interest income too. Further, with depreciation charges also remaining meek, the bottomline has grown at an impressive 61% YoY.

What to expect?

At the current price of Rs 259, the stock is trading at a price to earnings multiple of 13 times our estimated FY09 standalone earnings. However, this is not a true representative of the company’s intrinsic value as it has a huge investment portfolio and a majority stake in Brunner Mond. We had given a recommendation on the stock April 2007, taking into account these other investments. Barring the forex gains, which we believe will neutralize in the coming quarters, the company’s performance has largely been inline and hence, we stick with our view.

OTHER USEFUL LINKS

MARKET STATS

ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.